20120629final_order_no_32585.pdf

Office of the Secretary
Service Date
June 29.2012
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ZN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )CASE NO.IPC-E-12-14
AUTHORITY TO INCREASE ITS RATES )
AND ITS RATE BASE TO RECOVER ITS )INVESTMENT IN THE LANGLEY GULCH )ORDER NO.32585
POWER PLANT )
__________________________________________________
)
On March 2.2012.Idaho Power Company filed an Application requesting that the
Commission authorize the Company to increase its rate base and rates upon completion of the
Langley Gulch power plant.Langley Gulch is a 330 MW natural gas-fired combined-cycle
combustion turbine located near New Plymouth,Idaho.The Company proposed to increase its
rate base by $390,942,172 and correspondingly increase its annual revenues by $59,869,823
effective July 1,2012.Application at 2.The Company requested that the Application be
processed via Modified Procedure.
On March 21,2012,the Commission issued a Notice of Application and set a
deadline for intervention.Order No.32488.Petitions to intervene were filed by the Industrial
Customers of Idaho Power (the “industrial Customers”or “ICIP”);Micron Technology:and the
Idaho Irrigation Pumpers Association (the “Irrigators”or “IIPA”).These parties were
subsequently granted intervention.Order No.32503.All the parties participated in an informal
scheduling conference held on April 10,2012.The parties agreed that this case could be
processed via Modified Procedure and recommended a proposed schedule.On April 17,2012,
the Commission issued Order No.32523 requesting that written initial comments be filed no
later than May 30.2012 and simultaneous reply comments be filed no later than June 13,2012.
In response to the Commission’s Notice,initial comments were filed by about 10
customers.ICIP,the Irrigators.Snake River Alliance (SRA).and Commission Staff.Idaho
Power was the only party to file reply comments.As set out in greater detail below,the
Commission partially grants Idaho Power’s Application with new rates to be effective July 1,
2012.
ORDER NO.32585 1
BACKGROUND
A.The Prior Certjficate Order
In August 2009,the Commission issued Order No.30892 granting Idaho Power a
Certificate of Public Convenience and Necessity (CPCN)authorizing the utility to construct and
operate the Langley plant.In its Order,the Commission found that the present and future public
interest required the construction of the Langley Gulch power plant.Idaho Code §61-526,61-
528.
The Commission also found that Idaho Power had met the statutory requirements that
allowed the utility to receive specific “ratemaking treatment”for the new plant as part of the
CPCN process.In 2009,the Legislature enacted Idaho Code §61-541,which allows the
Commission to provide specific and binding ratemaking treatment when a public utility proposes
to construct and operate an electric generation facility.In particular,CPCN Order No.30892
authorized the Company to recover its capital investment in the Langley plant and related
facilities “in the amount of $396,618,473 at such time as the plant is placed in commercial
operation.”Order No.30892 at 46.
B.The Current Application
In prefiled testimony that accompanied the Application,the Company’s Senior Vice
President for Power Supply,Lisa Grow,said that construction of the water pipeline,water pump
station,natural gas pipeline,metering station,and most of the ancillary transmission lines have
been completed.Grow Direct at 9.She also declared that all necessary environmental permits
for the plant have been obtained.Id.She concluded that she expected the Langley Gulch plant
will be in commercial operation on or before July 1,2012.Id.at 16.
1.Rate Base.Company witness Timothy Tatum maintained that Idaho Power will
incur $398,133,778 of investment associated with the Langley plant by June 30,2012.Tatum
Direct at 5.However,the Company is only requesting authority to include $390,942,172 in rate
base at this time.Id.at 6.Mr.Tatum explains that the Company already booked some of its
Langley investment in the last rate case to acquire the plant site,water rights,and the necessary
property for running the water supply line from the Snake River to the plant.Tatum Direct at 6.
The Idaho Power witnesses conceded that the Company’s investment in the Langley
plant was greater than the Commission-approved recovery amount of $396.62 million.In
particular,Ms.Grow stated that the Company’s total investment in Langley will be
ORDER NO.32585 2
approximately $401.4 million or $4.8 million more than the Commission-approved amount.
Grow Direct at 12,15.She reported that like most large construction projects,some construction
costs are greater than initial estimates and some costs are below initial estimates.For example,
she stated the request for proposal (RFP)pricing costs were $5 million higher than the
Commission-approved amount included in the $396 million.Id.at 13-14.In addition,actual
transmission costs were $4 million above the Commission-approved amount.id.at 15.
Conversely,the costs for engineering/procurement,property taxes,AFUDC.and the gas turbine
came in under budget.Id.at 12.She explained that one of the reasons for exceeding certain cost
categories was that the Commission had only allowed 50%of some of Idaho Power’s original
construction estimates.
2.Annual Revenues.Idaho Power requested that its annual revenues be increased by
$59.869.823 to recover its capital investment in the Langley plant as well as recover other plant
expenses such as depreciation,taxes,and operational costs.Application at 2.The Company
proposed to recover this increased annual revenue requirement in customer rates by a uniform
percentage increase of 7.18%to all customer classes (as measured from current rate base
revenues),or a 7.1%increase in total current billed revenues.The Company submitted tariff
schedules showing the proposed rate increases to the various customer classes.See Application,
Atchs.1 and 2.
Part of the requested rate increase is attributed to new depreciation rates and lives for
the Langley plant and associated equipment.In depreciation Case No.IPC-E-12-08,the
Company and other parties agreed to a settlement where the rates and lives for the Langley plant
would be based on 35-year depreciable life.In Order No.32559 issued May 31,2012,the
Commission approved the settlement including depreciation rates based on a 35-year life for the
Langley plant.This change in depreciation expense attributable to Langley will be recovered in
this case.JPC-E-12-14.2
l In the CPCN Order No.30892 the Commission adopted Staff’s recommendation to separate cost categoriesbetweenthoseestimatedwithgreatercertainty,and those based upon more uncertain estimates and contingencies.Consequently,the Commission declined to approve the Company’s proposed “Commitment Estimate”of $427millionforapprovedrecovery,and instead authorized ratemaking recovery of $396 million.Order No.30892 at 39.Recovery of costs above the Commission-approved $396 million are subject to a prudency review [before]Commission approval.”Grow Direct at 3.See also Order No.30892 at 39.
2 Because the depreciation expense included in this Application was based upon a 30-year life for Langley,thedepreciationexpense(about $13 million)was overstated and must be revised.See Tatum Direct at 9;StaffCommentsatII.
ORDER NO.32585 3
INITIAL COMMENTS
As noted above,the Commission received comments from customers,the Industrial
Customers,the liTigators,SRA,and Staff.Most of the II customers opposed the rate increase
associated with the Langley plant.Customers urged the Company to avoid the rate increase by
cutting its costs.They were concerned that low-income or fixed-income customers would not be
able to afford the proposed rate increases.
A.Industrial Customers
The Industrial Customers made several recommendations in their comments.First,
they recommended Idaho Power not be allowed to recover any more thaji the $396.62 million
amount that was preapproved by the Commission in the CPCN Order.ICIP Comments at 1.
Any requested amount above that amount should be examined in the Company’s next general
rate case or in a proceeding “to determine the prudency and reason for the Company’s
expenditures above the preapproved level.”Id.at 3.
Second,ICIP noted the addition of Langley Gulch to the Company’s generation
resources will “dramatically”change Idaho Power’s resource stack.Id.at 5.The Industrial
Customers calculated that Langley will be Idaho Power’s least expensive unit on a variable cost
basis.Id.at 6.Based upon the analysis of its expert,ICIP expects the need for generation from
the Company’s three coal plants to decrease by over 70%.In particular,the Industrial Customers
estimated that output from the Valmy plant will drop by 97%,“making it virtually useless in
providing service to Idaho Power’s ratepayers.”Id.at 5.Despite Langley’s lowest cost,ICIP
asserted that the proposed 7%rate increase is more than the Commission was lead to expect
when the Company requested a CPCN for Langley in 2009.At that time,Idaho Power’s policy
witness estimated that Langley might result in net increase revenues by 3 or 4%.Id.at 6;see
also Order No.30892 at 31.
Third.the Industrial Customers asserted that the binding ratemaking treatment
envisioned in Idaho Code §61-541 has proven to be a “failed experiment in regulatory pre
approval.”Id at 2.In the prior CPCN case.ICIP argued that there were no compelling reasons
for the Commission to grant special ratemaking treatment for the plant given the present and
forecasted economic conditions.ICIP noted that Idaho Power’s general business loads have
declined by approximately 5.6%since the time that the CPCN Order was issued in 2009.Id.at
4.Thus,given an assurance for rate base recovery,Idaho Power had no incentive to delay or to
ORDER NO.32585 4
postpone when Langley should be placed into service.ICIP urged the Commission to make clear
that it will look upon future pre-approval requests with “great disfavor.”Id.
B.The Irrigators
The Irrigators requested the Commission deny the requested rate increase and
schedule a full rate case to examine how Langley Gulch will be integrated into the utility’s
operation.JIPA Comments at 1-2.The Irrigators maintained that the proposed 7.18%rate
increase relates solely to the addition of the Langley investment into rate base and does not take
into consideration other general rate case issues such as the $7.7 million net reduction in power
supply expense.Id.at 2.In essence,adding Langley Gulch to the Company’s rate base
constitutes a single item rate case and processing this case via Modified Procedure is
unreasonable.Id.at 3.The Irrigators argue that reviewing the proposed rate increase caused by
the inclusion of Langley Gulch —in isolation from other cost issues —does not account for issues
that may lower electric rates.
The Irrigators also noted that in the prior CPCN case,Idaho Power’s witness
suggested that Langley’s added costs might be offset by other cost decreases.Id.at 4 citing
CPCN Tr.at 220.In addition,they assert that using an “old”2010 AURORA computer model
run to incorporate the costs of Langley Gulch,gives a “very inaccurate view”of how Langley
Gulch will operate with other generating resources now and in the future.Id.at 5.The Irrigators
insisted the operating conditions of the utility’s generating plants “are completely different [now]
than they were in 2010.”Id.Like ICIP,the Irrigators suggest that Langley will be cheaper for
the Company to operate than any of its coal plants and that the Company’s loads are lower than
they were in 2010.Id.
The Irrigators also estimated that the Company’s Valmy generating plant will only
operate 3%of the time and this fact calls into question the future usefulness of the Valmy
resource to Idaho Power.Id.at 6.The Irrigators insisted that Idaho Power has not taken power
from Valmy since December 2011.Id.at 7.The Irrigators concluded by asserting that Langley
“should not result in a 7.18%rate increase without a review of its impact on the system under
today’s conditions and the impact that Langley Gulch has on [Idaho Power’s]entire resource
stack.”Id.at.8.A general rate case proceeding would provide parties and the Commission with
an opportunity to examine these issues and “produce a fair rate change for ratepayers.”Id.
ORDER NO.32585 5
If the Commission is not inclined to deny the proposed rate increase,then the
Irrigators requested that the Commission authorize no more than half of the rate increase (3.59%)
now and require Idaho Power to file a general rate case.Id.This alternative will allow the
Company to recover between 3 and 4%,and will allow the Commission and other interested
parties an opportunity to examine the Company’s 2012 costs in an evidentiary hearing.Id.
C.Snake River Alliance
SRA urged the Commission to deny the rate increase and ratebasing until such time
as the Langley plant is used and useful.It was concerned that construction of the plant “was and
continues to be ill-timed.”Comments at 1.It argued that costs for new assets should not be
prematurely shifted to customers “before the asset is operating.’Id.at 2.SRA was also troubled
by the prefiled testimony of Ms.Grow that the regulatory “assurance”embodied in Idaho Code §
61-541 constitutes a “binding commitment.”Id.SRA maintained that the proposed rate
increases will cause ratepayers to spend more of their household income “for a utility asset that is
not yet operating.”Id.
Although SRA recognized that the Commission has already granted a CPCN for
Langley,it nevertheless felt compelled to point out that Idaho Power has ample energy supplies
for the next several years.This is even more so with the absence of the Hoku special contract
load and the recently reported collapse of the Micron-Transform Solar endeavor.Id.at 3.Thus,
Idaho Power and its customers have a new Langley Gulch “generating asset for which the
demand is.at best,tepid.”Id.In addition.SRA observed that Idaho Power has not seen a record
seasonal peak in more than three years (winter or summer).Consequently,SRA maintains that
Idaho Power will be using Langley to increase its surplus off-system sales rather than meeting
load.Id.
Finally.SRA pointed out that Idaho Power has filed many dockets in the recent 12
months that potentially impact rates.However,the proposed rate increases for Langley Gulch
are not moderated or offset by these other cases.“The fact is,Langley represents an average
increase in billed rates of 7.10 percent....“Id.at 3-4.
D.Commission Staff
Staff performed a detailed review of the Company’s Application and workpapers.
This review included a comprehensive audit of actual and estimated plant and transmission
expenditures.Staff analyzed the malor contracts associated with the construction of the Langley
ORDER NO.32585 6
plant including change orders,invoices,and other financial transactions to review their
reasonableness,accuracy,and prudency.Staff Comments at 3.Staff calculated that the
Company will spend a total of $401,416,574 for the Langley plant and associated transmission
and facilities.This amount includes the $390,942,172 rate base request from this case;the
$7,191,606 already included in rates during the last general rate case;and $3,282,796 in costs
that will be incurred after June 30,2012.The Company will likely seek recovery of these latter
costs in a future rate case.Id.
Staff agreed with that the Company that the Langley Gulch investment has exceeded
the Commission-approved estimate by approximately $4.8 million.Id.at 4.However,Staff was
not surprised that a project of this magnitude would experience some cost categories above
budget and other cost categories below budget.Overall,Staff calculated that the Company will
finish its Langley Gulch project within 2%of the Commission-approved commitment estimate.
Id.
Except as noted below,Staff determined that the investment and operating
expenditures that exceeded their particular cost estimates were reasonable.3 Based upon its
review,Staff recommended four adjustments to the total investment costs of the project.These
four adjustments are outlined below:
1.Contingency Reserve.Staff recommended that the Commission remove
approximately $300,000 in reserve as a contingency to resolve potential
issues after “June 30,2012 for final acceptance of the gas and steam
turbine not based on any contractual obligation.”Staff recommended that
these costs should be scrutinized in a future rate case.Comments at 5.
2.RFP Development Cost.Staff recommended that the Commission
disallow the cost attributable to developing the Company’s benchmark
resource proposal in the amount of $251,894.Staff maintained that
because none of these costs were originally included in the Company’s
commitment estimate,other bidders in the RFP process would be
disadvantaged by adding these costs after it was determined that the
Langley resource was the winning bid.Comments at 10.
3.Transmission.Staff recommended that $1,197,938 related to the cost
differential of the Langley to Wagner line from 138 kV to 230 kV should
not be included in rate base.Staff stated that the Company acknowledged
that the upgrade of this transmission line was not required for the
These cost categories include:plant site property,permitting,water and gas lines construction,miscellaneous
equipment,and engineering.
ORDER NO.32585 7
operation of the Langley Gulch plant.Consequently,Staff recommended
that these costs be placed in the plant held for future use account.
Comments at 10-11.
4.Fiber Cable.Staff recommended removing $75,000 in costs for splicing
of fiber optic cable that will not be incurred until after June 30,2012.
Comments at 11.
See generally Staff Comments at 5.Given the sum of the adjustments above,Staff maintained
that the total estimated project investment should be reduced by $1,449,832 (from $401,416,574
to $399,966,742)and the total amount of investment allowed for recovery in this case be reduced
by $1,524,832 (from $390,942,172 to $389,417,340).Id.
Staff next calculated the impact of the recent settlement of Idaho Power’s
depreciation case (including adjusting the estimated life span for the Langley Gulch plant from
30 years to 35 years).Staff calculated the effect of this depreciation adjustment is a reduction in
the recommended revenue requirement of $1,561,305.Staff Comments at 11.Staffs
adjustments to revenue requirement are shown in its Attachment B.Based upon Staffs
transmission adjustment,RFP cost adjustment and out-of-period adjustments,Staff
recommended that the annual revenue requirement be reduced to $58,105,578 on an Idaho
jurisdictional basis.This results in a net reduction from the Company’s requested revenue
requirement of $1.764 million.Staff Comments at 13,18;Atch.B.
Staff also recommended two other adjustments in this case.First,Staff recommended
that the Company cease accruing allowance for funds used during construction (“AFUDC”)on
all costs in this case.“AFUDC is an accounting mechanism which recognizes capital costs
associated with financing construction.Generally,the capital costs recognized by AFUDC
include interest charges on borrowed funds and the cost of equity funds used by a utility for.
construction.AFUDC represents the cost of funds used during the construction period before
plant goes into service.”Id.at 12.The elimination of AFUDC costs will prevent the over
recovery of costs in this case.
Second,Staff also updated its calculation for the impact of the Langley Gulch plant
on the load change adjustment rate (LCAR).Staff reviewed the LCAR calculations prepared by
the Company and agreed that the LCAR should be reduced from $18.1 6/MWh to $1 7.64/MWh
as shown in Company Exhibit 4.Staff recommended that the LCAR be updated to this amount
when new rates become effective on July 1,2012.Id.at 19.
ORDER NO.32585 8
Given Staffs rate base and revenue adjustments,it recommended that the annual
revenue requirement associated with adding the Langley plant to rate base be $58,105,578.Id.at
1 8.Staff recommended that the increase become effective on July 1.2012 (or at such time as the
plant becomes operational),and he spread to each customer class as an equal percent increase
based upon June 1.2012,base revenues.This produces an overall billed revenue increase of
6.97%.Id.,Atch.C.
REPLY COMMENTS
Idaho Power submitted timely reply comments and addressed various issues raised by
the parties in their initial comments.The utility observed that the Commission,in September
2009,found that the public convenience and necessity required the construction of the Langley
plant.Consequently,the Commission authorized the Company to recover its rate base
investment in Langley Gulch in the amount of $396.61 8,473 when the plant is placed into
commercial operation.Order No.30892 at 46.The Company asserted that “this proceeding.
provides the Company the opportunity to justify any costs above [the preapproved amount]as
prudent....“Idaho Power Comments at 11 (emphasis original).
A.Rate Base Issues
The Company insisted that it exercised “exceptional management oversight”of the
plant’s construction because the total investment only exceeded the “preapproved amount (the
soft cap)...by $4.8 million,or 1.2 percent.”Id.at 14.Thus.“the total project investment is
$26 million,or 6.1 percent.less than the Company’s originally filed estimate [of $427.36
million]and approximately $120 million,or 23.2 percent.less than that of the next closest
[bidder’s]combined-cycle project....“Id.
Idaho Power’s reply comments specifically addressed two of Staffs recommended
adjustments regarding the RFP expenses and the Langley to Wagner transmission upgrade.The
Company agrees that Staff correctly quantified the $251 .894 as “RFP team expenses.”Staff
Comments at 5,Idaho Power Comments at 6.However.Idaho Power asserted that the RFP team
expenses were not associated with the development of the Company’s benchmark resource.Id.
at 6.Instead,the Company maintained that these expenses were cost incurred for the evaluation
of all RFP [bid]responses.”id.Consequently,the Commission should find that these costs are
necessary and appropriate,and should be included in rate base.
ORDER NO.32585 9
Idaho Power also opposed Staff’s partial rate base adjustment of $1,197,938
reflecting the incremental cost differential from 138 kilovolt (kV)to 230 kV in the Langley to
Wagner transmission line.Staff did not object to upgrading this line to 138 kV but opposed the
incremental costs to improve the line to 230 kV.The Company maintained that adding the
additional capacity above the 138 kV level at a later time would cost approximately $11 million
in today’s dollars.Id.Idaho Power insisted that adding the additional capacity to 230 kV “was
the most economical construction configuration based upon a long-term view of the system
operations.”Id.Moreover,because the line is on federal lands,BLM permitting in the future
becomes “increasingly more difficult and costly”due to the concern about the endangered plants
in the area.A future rebuild of this line from 138 kV to 230 kV would present additional cost
risks not included in the $1 1 million estimate.If the Company had only constructed the line to
138 kV capacity,the reconstruction period would take approximately six months and the
reliability of the Langley plant would be reduced during this time.Id.at 5.
While Idaho Power is sensitive to the impact of incremental investments,the
Company declared that the additional $1.2 million transmission investment best serves the
interest of customers in the long-term.Id.Approving this amount “would send a clear message
that [the Commission]is supportive of the Company’s efforts to minimize costs for customers in
the long-term....“Id.The Company concluded that allowing it to recover this cost now is
consistent with the State’s 2012 Energy Plan which encourages “a stable,robust,reliable
transmission system in order to provide reliable low-cost energy to Idaho customers and
facilitate renewable generation.”Id.at 5-6 citing 2012 Idaho Energy Plan at 120.In summary,
the Company requested that the Commission approve recovery of the rate base investment of
$390,942,172.Id.at 26.
B.Other Issues
1.Declining Load.Idaho Power rejected ICIP’s criticism of the utility’s decision “to
move forward with Langley [despite]declining loads.”ICIP Comments at 4.The Industrial
Customers alleged that the Company’s overall load declined by about 810,000 MWh,or 5.6%
since the CPCN Order was issued in September 2009 and 2011.Id.However,Idaho Power
maintained that loads between 2009 and 2011 only declined 1.5%.Idaho Power Reply at 16.
Idaho Power insists that ICIP miscalculated the decline in load by comparing 2008 sales instead
of utilizing the May 2009 load forecast presented in the prior CPCN docket.Id.
ORDER NO.32585 10
In addition.Idaho Power asserted that the Integrated Resource Plan (IRP)process is
the more appropriate forum to evaluate changing loads and resources.The Company stated that
its 2011 IRP takes into account the load reduction attributable to Hoku Materials and increased
generation due to more PURPA contracts.Id.at 17.Without the Langley plant,the Company
declared that its 2011 IRP peak-hour load and resource balance shows load deficits of 28 MW in
July 2012,169 MW in July 2013.and 224 MW in July 2014.Id.(emphasis added).When the
Langley plant is not needed to meet these load deficits.Langley may be used to generate surplus
sales and such sales revenue will flow back to customers through the annual Power Cost
Adjustment (PCA)filing.Id.
2.Impact on other Resources.Idaho Power took exception with the Irrigators’and
Industrial Customers’arguments when Langley comes on line,output from the Valmy plant may
not be needed.Idaho Power disputed this contention for several reasons.First.the Company
noted that the AURORA model simulation relied upon by the Irrigators replaced only the gas
price inputs,while holding all other modeling input the same.The Company conceded that
simply changing fuel costs for only one generating resource changes the “economic dispatch of
the Company’s generation resource fleet.”Id.at 7.The Company maintained that the IRP
process is the appropriate forum to address the deployment of resources.Id.at 7.
Second,the Irrigators’use of the one AURORA run was flawed because it was based
upon an analysis that utilizes normalized water and weather conditions.Id.at 8.Idaho Power
asserted the appropriate approach to resource planning (one that has been accepted by the
Commission in past IRPs)is to determine resource need based upon “lower than normal stream
flows and higher than normal load conditions represented by 70th percentile water and 70th
percentile load conditions for average monthly load/energy (average megawatts),and [using)
90th percentile for water and 95thi percentile for load for peak-hour capacity (MW).”Id.
(emphasis added).The Company declared these higher IRP parameters are more prudent than
using the 50th percentile water and 5O percentile loads.
Even using the 50th percentiles water and load scenario.Idaho Power stated that
annual utilization of Valmy “is not expected to differ dramatically from its past operations.”Id.
at 9.Valmy’s capacity factor is even higher when using the 7O percentile water and load
criteria.Id.at 9.When using the critical 90th percentile for water and 95th percentile for load
scenario,Idaho Power’s 2011 IRP assumes that Valmy is available and at full capacity during the
ORDERNO.32585 11
summer peaking months regardless of how much energy the plant produces on an annual basis.
Id.at 10.
Third,the Company submitted that both it and Staff agree that the Company correctly
determined the change in net power supply expense (NPSE)associated with the addition of
Langley.The Company noted that the Commission has already examined and approved all the
input to determine the current base level NPSE and the Company believes that changing these
inputs ‘unduly expand[s]the issues in this case beyond the issue of Langley.”Id.at 10.The
Company asserted that the risk of delaying Langley’s operational date far exceeded the financial
consequences of bringing the plant on as planned.Idaho Power stated its ‘actions were and are
continually informed by its statutory obligation to provide and maintain adequate,reliable,and
efficient electric service.Idaho Code §61-302.”Id.at 15.
3.Langley Benefits.In addition to serving summer loads,Idaho Power insisted that
the Langley plant will promote system reliability,will be an extremely efficient generator given
historic low gas prices,and will improve system performance following system disturbances.Id.
at 17-22.In particular,the Company maintained that Langley has already provided power
stabilization to the western part of Idaho Power’s system.When a wind storm swept through
southern Idaho on June 4,2012,it heavily damaged electric facilities in parts of the Company’s
service area.While the Langley plant was running for test purposes,it was dispatched to help
“maintain load balances on the western side of [Idaho Power’s]system.”Id.at 19.
The Company said Langley will provide Idaho Power customers with increased
benefits as a base load plant once it begins commercial operation.“Langley’s capacity is
expected to alleviate reliance on power purchases over non-firm transmission paths during peak
demand periods like those experienced during the summer of 2011.”Id.at 20.For example,
during system load peaks in July and August 2011,Idaho Power was importing up to 132 MW
over non-firm transmission paths from the Pacific Northwest.The availability of Langley will
significantly reduce the Company’s reliance on purchased power.Id.The Company also
insisted that Langley’s ability to ramp-up generation quickly from 60%to 100%of its capacity
will provide greater flexibility and dispatchability by providing the power system with
approximately 100 MW of intra-hour dynamic capacity.Id.
4.Ratemaking Treatment.Idaho Power took exception to the Industrial Customers’
recommendation that the Commission avoid using the binding ratemaking treatment embodied in
ORDER NO.32585 12
Idaho Code §61-541 in future cases.Idaho Power argued that the preapproved rate base
treatment in this case “was necessary to facilitate the financing of Langley.”Id.at 12.The
Company maintained that sufficient capital “could not be internally generated given the state of
the capital markets in 2009 and the additional $220 to $295 million of annual infrastructure
investment Idaho Power anticipated [making]between 2009 and 2011.”Id.
The Company conceded that the ratemaking assurance of Section 61-541 “did not
absolve Idaho Power of exercising managerial oversight over the project.”Id.As noted above,
Idaho Power observed that the Langley investment only exceeded the preapproved amount by
1.2%.Id.at 14.Of the $396.6 million preapproved amount,about $188 million was committed
for the combined-cycle plant,real estate,and water rights purchases.Moreover,the Company
provided the Commission with quarterly progress reports showing construction progress,cost
information,and changes to construction schedule as required by Order No.30892.Id.at 12.
Consequently,the ratemaking treatment provided in Section 61-541 was not a failure in this case.
Id.at 13.
DISCUSSION AND FINDINGS
1.Use of Modified Procedure.We first take up the Irrigators’recommendation to
deny this Application and schedule a general rate case to examine rate base and revenue issues
for the Langley plant.In the alternative,the Irrigators urged the Commission to grant only half
of the requested revenue increase and compel the Company to file a general rate case.We
decline these invitations for two reasons.
First,we find that the Irrigators agreed at the informal scheduling conference with the
other parties to process this case by Modified Procedure.Indeed,in our Notice of Modified
Procedure,we stated that the “parties agreed that this case could be processed via Modified
Procedure Order No.32523 at 1.The magnitude of the addition to rate base and the
proposed rate increase was cited in the Application and was known to the Irrigators at that time.
If the Irrigators did not believe that Modified Procedure was appropriate for processing this case,
it should have advised the Commission before we issued our Scheduling Order.
Second,granting only half the proposed increase as the Irrigators suggest in their
alternative,undermines our CPCN Order No.30892 and is inconsistent with Idaho Code §61-
541.In our CPCN Order No.30892.we found that the public convenience and necessity
required Idaho Power to construct and operate the Langley plant.That Order also approved a
ORDERNO.32585 13
specific “ratemaking treatrnent’that allowed the utility to recover $396.6 million pursuant to
Section 61-54 1 when the “plant is placed in commercial operation.”Order No.30892 at 46.The
Company asserts that the plant will be in operation on or before July 1,2012.We find that
limiting the Company to half of the proposed rate increase is inconsistent with our CPCN Order.
Moreover,the Irrigators have failed to adequately demonstrate that Idaho Power should not be
allowed to rate base its Langley investment.
2.Staff Adjustments and Recommendations.We next turn to the four adjustments
proposed by Staff and its two recommendations regarding AFUDC and the reduction in the
LCAR.Idaho Power apparently opposed all four adjustments but offered no rebuttal comments
regarding Staffs recommendations to defer recovery of the $300,000 in contingency reserve and
the $75,000 in costs for splicing fiber optic cable.Staff argued that because these two issues will
not be resolved until after July 1,2012,any recovery in rates should be deferred.We find that it
is appropriate to remove the $300.000 in the contingency reserve and the $75,000 splicing cost
from recovery until such time as the Company’demonstrates that these investments have actually
been incurred and are prudent.
The Company also objected to Staffs proposal to remove $25 1,849 attributable to the
RFP team expense.Based upon our review of the comments,we find that this investment should
not be included in the Company’s rate base at this time.We find that Idaho Power has failed to
make a convincing case demonstrating that these expenses were incurred to review all the RFP
responses.Consequently,these costs should not be recovered in this case with the Langley plant
investment.
We next examine Staffs proposal to defer recovery of $1.197.938 in transmission
costs from the Langley investment in this case.Staff did not object to the construction of the 138
kV Langley to Wagner transmission line but opposed the incremental cost to increase the line’s
capacity to 230 kV.Staff maintained that this amount should be excluded from rate base at this
time because the Company plans to operate the transmission line at the 1 38 kV level in the near
term.Staff Comments at 5.10-11.For its part,the Company noted that 138 kV capacity will
“be fully utilized to integrate Langley into the Company’s electric system.”Idaho Power Reply
at 3.Based upon our review of the comments,we find that this amount should not be placed into
rate base at this time because the incremental cost difference between the 138 kV and the 230 kV
capacity is not associated with the near-term operation of the Langley plant.This investment is
ORDER NO.32585 14
associated with the future generation and transmission needs of the Company.In other words,
the excess capacity in this line is not directly associated with bringing the Langley plant on-line
and will not be used and useful on July 1.2012.
We recognize and support the efficiencies of adding capacity to this transmission line
during initial construction.However,that does not justify its inclusion in rate base as part of the
Langley project.When this portion of the line provides service to Idaho ratepayers,the
Company may then seek to include this amount in rate base.We are not disallowing this
investment but merely deferring it until a future time.This case is for Langley costs only.
Turning to the two recommendations.we find that it is appropriate to halt AFUDC as
of July 1,2012.Likewise,LCAR should be reduced from $18.16/MWh to $17.64/MWh.4
3.Loads and Generation.We next turn to the Irrigators and the Industrial
Customers’arguments regarding the consequences of integrating the Langley plant with the
Company’s other generating units.Based upon our review of the comments,we find that the
Industrial Customers’assertion that loads have decreased by about 5.6%between 2009 and 2011
to be unpersuasive.As pointed out in its reply comments,the Company updated its load forecast
in May 2009 in the CPCN case.The difference between the May 2009 load forecast and 2011
loads is a decline of 1.5%.
The Irrigators and Industrial Customers also question the operation and costs of other
generating units based upon their estimate that Langley will become the Company’s least-cost
thermal plant due to historically low natural gas prices.ICIP at 6;IIPA at 5.Given Langley’s
least-cost profile,undoubtedly there will be changes in the operations of the Company’s
generation fleet.We also have no doubt that putting Langley Gulch into operation will alter the
historic dispatch order and short-term cost-effectiveness of all of the Company’s other resources
including its irrigation load control program.However,those are not issues for this case.As we
said in our CPCN Order,once the Langley plant became operational.the Company will be
allowed to rate base its reasonable and prudent investment in Langley.Order No.30892.That is
the purpose of this case.
4.Ratemaking Treatment.We finally turn to the Industrial Customers’allegation
that the ratemaking treatment afforded Idaho Power in the CPCN Order was unreasonable and
The Company submitted revised proposed tariff schedules incorporating Staff’s rate design.We have reviewedtheseschedulesandfindthattheyconformtoourdecisionsinthisOrder.We approve them effective July 1,2012.
ORDER NO.32585
the Commission should avoid adopting such ratemaking treatment in future cases.We do not
share ICIP’s view for two reasons.First,the preapproved amount of $396.6 million was
necessary to facilitate the Company’s financing of the Langley plant.Recovery of the
preapproved amount was intended to assist the Company in obtaining the necessary capital to
finance the construction of the plant.Order No.30892 at 39.This comports with the purpose of
Idaho Code §61-541 to facilitate the acquisition and construction of major generation or
transmission facilities while balancing the interests of the utility and ratepayers.
Second,we note that Langley’s investment is treated like other plant investment
because it receives the same rate of return.The rate of return for the Langley investment is the
same as any other capital asset of the Company.Id.The utility requesting special ratemaking
treatment carries the burden of showing such treatment is necessary.The Commission carefully
balanced the interests of the utility and ratepayers.Moreover,we reduced the requested rate base
commitment by $26 million to protect the ratepayers.The Commission is not afforded the use of
hindsight to judge the reasonableness of issuing the CPCN to Langley three years ago.However,
it is interesting to note that ICIP argued in the prior CPCN case that Langley would be an
expensive plant to operate but now maintains that Langley “will be Idaho Power’s least
expensive unit,on a variable cost basis.”ICIP Comments at 6.In retrospect,the current
historic low natural gas prices makes Langley a low-cost generating resource.Consequently,we
will retain the option in future suitable cases to carefully consider adopting the ratemaking
treatments available pursuant to Idaho Code §61-541.
ULTIMATE FINDINGS OF FACT
AND CONCLUSIONS OF LAW
Idaho Power Company is an electric utility subject to the Commission’s regulation
under the Public Utilities Law,Idaho Code §61-119,61-129.The Company’s rates,charges
and contracts for electric service in the State of Idaho are subject to the Commission’s
jurisdiction.
Based upon the record,we find it reasonable to increase the Company’s rate base by
$389,417,340 upon the completion and operation of the Langley Gulch power plant.
We further find that the incremental revenue requirement associated with adding the
Langley Gulch power plant to base rates results in an annual increase in revenues of
$58,105,578.When this revenue is spread to each customer class on an equal percentage
ORDER NO.32585 16
increase based on June 1,2012 billed revenues (excluding monthly service charges),it results in
an overall average rate increase of 6.83%.See Attachment A.The Commission finds that the
rate design approved in this Order results in rates that are fair,just and reasonable.
ORDER
IT IS HEREBY ORDERED that Idaho Power Company’s Application to increase its
rate base and customers rates upon completion of the Langley Gulch power plant is granted as
modified above.The Company may increase its rate base to recover its Langley investment in
this case in the amount of $389,417,340.
IT IS FURTHER ORDERED that the Company may increase its annual revenue
requirement associated with the addition of the Langley Gulch power plant in the amount of
$58,105,578.
IT IS FURTHER ORDERED that Idaho Power cease accruing AFUDC on all
Langley plant costs that are included in rates effective July 1,2012.
IT IS FURTHER ORDERED that the Company’s LCAR be updated to $17.64 per
megawatt hour effective July 1,2012.
IT IS FURTHER ORDERED that the annual revenue increase be spread to each
customer class on an equal percentage based upon June 1,2012 base revenues to be effective
July 1,2012,if the facility is in commercial operation at that time.
THIS IS A FINAL ORDER.Any person interested in this Order (or in issues finally
decided by this Order)or in interlocutory Orders previously issued in this Case No.IPC-E-12-14
may petition for reconsideration within twenty-one (21)days of the service date of this Order
with regard to any matter decided in this Order or in interlocutory Orders previously issued in
this case.Within seven (7)days after any person has petitioned for reconsideration,any other
person may cross-petition for reconsideration.See Idaho Code §6 1-626.
ORDER NO.32585 17
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this (7
day of June 2012.
/7
7 /
PAUL KJELLANDER,1’RESIDENT
MACK A.REDFORD,COMMISSIONER
I’
/i’4_
MARSHA H.SMITH,COMMISSIONER
ATTEST:
Jean D.Jewell
Commission Secretary
bls/O:IPC-E-12-1 4_dh3
ORDERNO.32585 18
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